Another year another dollar. My first question to all of you is, how much is enough this year? What kind of profits are you looking for? What is your number for this year? I always ask myself this question whenever a new year starts. Of course, these are just targets we set for ourselves but trust me, I keep to it a lot better than keeping to my new year resolutions. Oh by the way, my new year resolution for this year is to lose 10 kilos. And yes...be a better man....yeah right!
The first week of January has passed by pretty smoothly with the exception of some correction in commodities and commodity related stocks. Overall a pretty good start to the new year so far and lets hope it will give us a little more before the must anticipated correctional phase sets in.
So far the top 10 picks have been performing with KS Energy leading the way. I had many people sms me on whether the 10 picks were in any order of priority. I will clarify it here. There is no order, I just wrote it as they came to my mind. It is up to you on which story convinces you most.
Was really caught in two minds on what to touch on today. Should I write on a stock today or should I just write about what I think of the market. I know most of you would like me to pick on stocks because these may become punts for you but I just want to say, the quick moves in KS energy and Tuan Sing were not something I anticipated but they were definitely picked because of their improving fundamentals. In the end, the decision was just to do a little bit of both. Seriously doubt I will have time to write over the next two weeks because I will be on the road travelling and not for fun I might add. Most business as usual. So try not to miss me too much. hahaha.
This year, almost everyone I have heard on CNBC, read in investment journals and spoken to, have been bullish on equities. Everyone expects this year to be the year where the equity bull returns in full flight and stocks get re rated upwards. Credit is expected to become looser and banks to start lending more, esp in the developed markets. As more companies take up more leverage into their balance sheets, re rating will happen. Somehow analysts love it when companies get really aggressive and take on more credit for their expansionary plans and for whatever other purposes.
One thing I am thinking more about is the relationship between equities and the USD. Over the past 2 years, the negative correlation between the USD and equity market performance has been almost a no brainer trade. When the USD falls, the market rises and vice versa. But something tells me, this relationship will not be so straight forward this year and onward. Why this relationship has been so persistent was because the dollar was the ultimate safe haven trade and it reflected risk aversion and risk on trades. But as the US economic recovery continues, market will continue to move upward while the USD may not necessarily move lower as it does. Even though I am sure the USD will continue to linger at weak levels or even move lower, monitoring the USD to determine how the market is going to move will not be so reliable any more.
There is a small correction in resource companies currently because of the stronger USD and worries over a hard landing for the Chinese economy but I believe it gives all of us an attractive opportunity to accumulate more. I know I am.
A few of you sent me smses on a stock amongst my picks. It was a stock that not many are aware of and flying way below the radar screens of analysts.
APAC Resources Limited is listed on The Stock Exchange of Hong Kong Limited (stock code: 1104). APAC and its subsidiaries are principally engaged in (i) trading in base metals and commodities; and (ii) trading and investment in listed securities with a portfolio primarily focused on natural resources and related sectors and industries.
APAC's investment strategy is to generate above average returns via identifying and investing in resource companies that have potential to generate long-term sustainable cashflows and, hence, significant capital appreciation. Core investments include Mount Gibson Iron Limited (ASX: MGX) which mines iron ore in Western Australia, and Australia's largest tin producer, Metals X Limited (ASX:MLX). Other investments include Kalahari Minerals Plc (AIM:KAH) which has an interest in one of the world's largest undeveloped uranium deposit. APAC also runs a commodity trading division.
APAC's portfolio comprises Mount Gibson Iron and Metals X Limited as primary investments. Other significant investments include Kalahari Minerals, as well as a spread of smaller positions for geographic, development stage and commodity diversification.
Company Code % Held Focus
Metals X MLX.AX 29.08 Tin/Nickel
Mount Gibson Iron MGX.AX 26.22 Iron Ore
Kalahari Minerals KAH.L 14.82 Uranium
As at 31st December 2010
The details on the miners owned are as follows:
Mount Gibson Iron Limited (MGX)
MGX is a leading independent iron ore producer in West Australia, operating Tallering Peak and Koolan Island mines and developing Extension Hill, lifting total Mount Gibson production to 9Mtpa in 2012.
Metals X Limited (MLX)
MLX is Australia's largest tin producer with operations in western Tasmania. MLX is also developing a nickel project at Wingellina in Western Australia. In addition, MLX holds meaningful interests in four other resource companies, Westgold Resources Limited (gold and copper), Jabiru Metals (copper and zinc), and Aragon Resources Limited (gold and phosphates).
Other investments include:
Kalahari Minerals Plc (KAH)
An AIM and Namibian Stock Exchange listed resource company with uranium, gold, copper and other base metal interests in Namibia. Kalahari is the largest shareholder of Extract Resources Limited, listed on ASX and TSX, holding 40%. Extract's main asset is the Husab Uranium project, which contains the Rossing South deposit with a resource of 367M lbs of uranium and already one of the world's largest undeveloped deposits. Kalahari also holds 45% of North River Resources.
Trading
APAC's commodity trading division is based in Shanghai and currently trades iron ore and coal. With significant industry experience, excellent distribution into China and extensive global connections, the company is in a good position to grow.
APAC's commodity team is highly experienced, having traded various carbon steel materials in China and abroad for many years.
Currently, the company is in line to derive earnings of close to 11 times p/e for 2010 while the company is trading at close to 50% discount to its NAV. I like the fact that their stakes in Metals X, Mount Gibson are Kalahari are all doing well and have seen significant movements in their prices. The NAV should be higher than their last report. If we look at the sum of parts, the NAV should be closer to HKD 1 dollar. I know it ain't much but considering the stock is now at HKD0.54. The discount is just not practical. Also, the NAV does not include in the potential of their trading desks growing. Remember, Noble also started this way and look where it is now. The new management is looking very aggressively to buy stakes in junior miners and so far so good. Thus I believe this is a great opportunity to buy a stock that analysts do not look at and has great growth potential.
Oh I forgot to add, the company has HKD640 mil in cash from their recent placement and thus have lots of opportunity to add more acquisitions. Operating cashflows have been positive for the past 2 years since new management was installed. Speaking of management, their chairman is Chong Sok Un who was in charge of Shenyin Wanguo Ltd a securities company in HK. Their new CEO Andew Charles Ferguson is a fund manager specialising in natural resource companies for City Natural Resources Fund which has delivered 300% since 2009. That explains the company's great choices of investments. Expect this company to be managed like a fund and if he continues to do well, expect that similar results for the company as well.
The more I read about this company, the more I like it. It has moved more than 8% since my call last week. I am keeping this for the long term. Will not put any target price for this.
Thats all from me.
Have a great few weeks from today. I am not sure I will be able to post simply because I will not be around.
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